Valuable waterfront property in Ipswich could soon be on the market, but there's a 350-year-old catch that has ignited a fight in the community that will end up in the courts this week.

The land encompasses 35 seafront acres left by a colonial settler to a trust designed to funnel rent money to local schools. Centuries later, that same trust now wants to develop the property for condominiums, and the move has sparked a legal battle.

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Three hundred years ago, William Payne, one of the state's earliest settlers, left the land to the state's school children, creating the nation's oldest charitable trust. He said the land should never be sold or wasted. Now, however, the trustees are trying to sell the land to the 167 residents who have since built cottages there.

"William Payne's intent, that this land always be held for the benefit of the Ipswich school children, was ignored," said attorney Mark Swirbalus, who represents opponents of the move.

The rent money paid by the cottagers has generated some $2.4 million to help fund public schools over the last 25 years, but when their rent was increased in 2006 they filed a lawsuit against the trustees, who have now proposed a settlement with them that involves tearing up the will, building condos and selling them to the cottage owners.

"Even if it were OK to ignore what Payne intended, the numbers bear out the fact that this doesn't make good financial sense for the Ipswich schools or the children in the Ipswich schools," Swirbalus said.

Hundreds of residents have come out against the settlement and a Massachusetts Appeals Court is set to hear the case on March 2. They argue that the selling price is millions less than the land is worth. It's been assessed at $41 million, but the land is for sale for $32 million.

"A great number of people who feel like the real estate market is on a low end, so why in the world sell property when it's so depressed?" said Ipswich Selectman Patrick McNally.

The issue has divided the town, but the state has endorsed the land sale, with State Attorney General Martha Coakley saying "The trust had become wholly ineffective in serving its stated purpose of aiding Ipswich schools."

Payne's land gift was intended to help Ipswich comply with a 1647 colonial law that mandated that communities with more than 100 families set up a grammar school. The idea was to prepare students for admission to "the College at Cambridge" -- a reference in his will to Harvard College, which was founded in 1636.

Proponents of the plan to sell the land said money from the sale will continue to benefit Ipswich schools and a publicly appointed board will manage the trust. It also shifts to the tenants the burden of fixing land erosion problems on the neck.